International finance

1. International finance Session 1 24 february 2004

2. Presentations and marks • For groups of 2 or 3 people • Propose, for next time, a topic (any subject related to the international economic situation) • Marks • Work • Clarity of presentation • English • Synthesis • We will select dates for the presentations (15 mn + discussion) • At the end of the semester there will be a little complementary presentation by the same groups

3. Today’s topics • Gross Domestic Products • Ricardo theory of competitive advantage • Introduction to Balance of Payments (BOP)

4. GDP • Countries (all the citizens of a country) create wealth • And distribute their wealth, via the mechanisms of markets, and money • The idea of measuring this wealth creation dates from the early XXth century (Keynes suggested that) • The idea of measuring the quantity of goods and services produced by a country year after year is a recent one. • It is useful to pilot government policies, but it has severe drawbacks.

5. Purposes of economics • Understand the conditions of creation of wealth and well-being in countries • Modern societies are based on exchange, so we study exchange (real goods and services and money and promises) • There is so much concern with making this production and exchange « efficient » that it may said that we live in merchant societies. • We are overwhelmed by billboards, prices, shops, ads, money discussions… • That is because in the Western world we live in societies that value very much production and consumption, and therefore exchange of a merchant nature.

6. Stability and unstability • The world has never been as unstable as today (cf. the interest rate curve over the last two centuries) • China is the only country where today’s kids can read texts written 1500 years ago.

7. GDP • It is a measure for every country every year of the wealth created • Since Economics purports to understand and create the condition of wealth creation, we must measure it • The Gross Domestic Product does it • It has severe drawbacks : the cleaning of pollution, created by economic activity, is measured positively in the GDP • Just like accounting for firms has drawbacks (eg. historic costs), accouting for countries has drawbacks too. • We know that when we say that in this country we earn $10 000/persxyear and in that only $2 000, the comparison doesn’t make entirely sense

8. GDP • GDP are usually measured and presented via consumption : we measure what was bought during the year by various groups in the country (most of what is produced is bought – in fact this is rather a definition of « what is produced » because the rest, which is quite important, is not counted in the GDP -, and it is easier to measure) • Usually we use • Households • Businesses • Governments (central and local) • The rest of the world

9. US GDP

10. US Population and GDP/capita • The US population in early 2004 is 292 million people • The US GDP 2003 is 10 984 billion dollars • GDP per capita : about 37 600 dollars/p • The early 2004 world population is 6 350 million people (during this 3 hour class the world population will increase by 30 000, and about 8 million more tons of carbon dioxide will be released into the atmosphere by cars and industries) • The world GDP is about US $ 35 to 40 000 billion • World gdp/cap = 5500 to 6000 dollars per pers

11. Numbers to remember • World GDP : 35 to 40 000 billion dollars • US GDP : 10 000 billion dollars • West europe GDP : a bit more than the US • China : about 4 to 5% of the world GDP • World population : 6,4 billion people • US pop : 292 million • China pop : 1300 million • US GDP pers : 37 000 dollars/p • China GDP pers : about 1000 dollars/p • China GDP yearly growth : about 8 to 10 percent.